Delaware | 1-12626 | 62-1539359 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
200 South Wilcox Drive, Kingsport, TN | 37662 | |
(Address of Principal Executive Offices) | (Zip Code) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | ||
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | ||
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | ||
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
EASTMAN CHEMICAL COMPANY - EMN |
EASTMAN CHEMICAL COMPANY - EMN |
EASTMAN CHEMICAL COMPANY - EMN |
Eastman Chemical Company | ||
By: | /s/ Scott V. King | |
Scott V. King | ||
Vice President, Corporate Controller and Chief Accounting Officer | ||
Date: April 25, 2019 |
(In millions, except per share amounts) | 1Q2019 | 1Q2018 |
Sales revenue | $2,380 | $2,607 |
Earnings before interest and taxes ("EBIT") | 320 | 409 |
Adjusted EBIT* | 352 | 459 |
Earnings per diluted share | 1.49 | 2.00 |
Adjusted earnings per diluted share* | 1.77 | 2.23 |
Net cash used in operating activities | (5) | (35) |
Free cash flow* | (111) | (113) |
Item | Page | |
Table 1 – Statements of Earnings | |||||||
First Quarter | |||||||
(Dollars in millions, except per share amounts; unaudited) | 2019 | 2018 | |||||
Sales | $ | 2,380 | $ | 2,607 | |||
Cost of sales (1) | 1,806 | 2,026 | |||||
Gross profit | 574 | 581 | |||||
Selling, general and administrative expenses | 187 | 190 | |||||
Research and development expenses | 58 | 56 | |||||
Asset impairments and restructuring charges, net | 32 | 2 | |||||
Other components of post-employment (benefit) cost, net | (21 | ) | (30 | ) | |||
Other (income) charges, net (2) | (2 | ) | (46 | ) | |||
Earnings before interest and taxes | 320 | 409 | |||||
Net interest expense | 56 | 59 | |||||
Earnings before income taxes | 264 | 350 | |||||
Provision for income taxes | 55 | 60 | |||||
Net earnings | 209 | 290 | |||||
Less: Net earnings attributable to noncontrolling interest | — | — | |||||
Net earnings attributable to Eastman | $ | 209 | $ | 290 | |||
Basic earnings per share attributable to Eastman | $ | 1.50 | $ | 2.03 | |||
Diluted earnings per share attributable to Eastman | $ | 1.49 | $ | 2.00 | |||
Shares (in millions) outstanding at end of period | 138.6 | 142.6 | |||||
Shares (in millions) used for earnings per share calculation | |||||||
Basic | 139.0 | 142.8 | |||||
Diluted | 140.1 | 144.8 |
(1) | First quarter 2018 included $87 million of net costs from the previously reported disruption, repairs, and reconstruction of the coal gasification facility and restart of operations resulting from the October 4, 2017 incident (the "coal gasification incident"). |
(2) | First quarter 2018 included a $50 million gain from insurance for property damage from the coal gasification incident. |
Table 2A – Segment Sales Information | ||||||||
First Quarter | ||||||||
(Dollars in millions, unaudited) | 2019 | 2018 | ||||||
Sales by Segment | ||||||||
Additives & Functional Products | $ | 855 | $ | 939 | ||||
Advanced Materials | 657 | 693 | ||||||
Chemical Intermediates | 655 | 730 | ||||||
Fibers | 213 | 245 | ||||||
Total Sales by Segment | 2,380 | 2,607 | ||||||
Other | — | — | ||||||
Total Eastman Chemical Company | $ | 2,380 | $ | 2,607 |
Table 2B – Sales Revenue Change | ||||||||
First Quarter 2019 Compared to First Quarter 2018 | ||||||||
Change in Sales Revenue Due To | ||||||||
(Unaudited) | Revenue % Change | Volume / Product Mix Effect | Price Effect | Exchange Rate Effect | ||||
Additives & Functional Products | (9) | % | (5) | % | (2) | % | (2) | % |
Advanced Materials | (5) | % | (4) | % | 1 | % | (2) | % |
Chemical Intermediates | (10 | )% | (6) | % | (3) | % | (1) | % |
Fibers | (13) | % | (11) | % | (2) | % | — | % |
Total Eastman Chemical Company | (9) | % | (6) | % | (1) | % | (2) | % |
Table 2C – Sales by Customer Location | ||||||||
First Quarter | ||||||||
(Dollars in millions, unaudited) | 2019 | 2018 | ||||||
Sales by Customer Location | ||||||||
United States and Canada | $ | 1,000 | $ | 1,100 | ||||
Asia Pacific | 553 | 642 | ||||||
Europe, Middle East, and Africa | 689 | 727 | ||||||
Latin America | 138 | 138 | ||||||
Total Eastman Chemical Company | $ | 2,380 | $ | 2,607 |
Table 3A - Segment, Other, and Company Non-GAAP Earnings (Loss) Before Interest and Taxes Reconciliations (1) | ||||||||
First Quarter | ||||||||
(Dollars in millions, unaudited) | 2019 | 2018 | ||||||
Additives & Functional Products | ||||||||
Earnings before interest and taxes | $ | 146 | $ | 176 | ||||
Asset impairments and restructuring charges, net (2) | 4 | — | ||||||
Net coal gasification incident costs | — | 2 | ||||||
Excluding non-core and unusual items | 150 | 178 | ||||||
Advanced Materials | ||||||||
Earnings before interest and taxes | 102 | 135 | ||||||
Net coal gasification incident costs | — | 3 | ||||||
Excluding unusual item | 102 | 138 | ||||||
Chemical Intermediates | ||||||||
Earnings before interest and taxes | 73 | 70 | ||||||
Net coal gasification incident costs | — | 19 | ||||||
Excluding unusual item | 73 | 89 | ||||||
Fibers | ||||||||
Earnings before interest and taxes | 42 | 43 | ||||||
Net coal gasification incident costs | — | 13 | ||||||
Excluding unusual item | 42 | 56 | ||||||
Other | ||||||||
Loss before interest and taxes | (43 | ) | (15 | ) | ||||
Asset impairments and restructuring charges, net (3) | 28 | 2 | ||||||
Costs resulting from tax law changes and outside-U.S. entity reorganizations | — | 11 | ||||||
Excluding non-core and unusual items | (15 | ) | (2 | ) | ||||
Total Eastman Chemical Company | ||||||||
Earnings before interest and taxes | 320 | 409 | ||||||
Asset impairments and restructuring charges, net | 32 | 2 | ||||||
Net coal gasification incident costs | — | 37 | ||||||
Costs resulting from tax law changes and outside-U.S. entity reorganizations | — | 11 | ||||||
Total earnings before interest and taxes excluding non-core and unusual items | $ | 352 | $ | 459 | ||||
Company Non-GAAP Earnings Before Interest and Taxes Reconciliations by Line Items | ||||||||
Earnings before interest and taxes | $ | 320 | $ | 409 | ||||
Costs of sales | — | 87 | ||||||
Selling, general and administrative expenses | — | 3 | ||||||
Asset impairments and restructuring charges, net | 32 | 2 | ||||||
Other (income) charges, net | — | (42 | ) | |||||
Total earnings before interest and taxes excluding non-core and unusual items | $ | 352 | $ | 459 |
(1) | See "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Quarterly Report on Form 10-Q for first quarter 2018 for descriptions of first three months 2018 non-core and unusual items. |
(2) | Additional restructuring charge related to a capital project discontinued in 2016. |
(3) | Primarily severance and related restructuring costs. |
Table 3B - Segment Non-GAAP Earnings (Loss) Before Interest and Taxes Margins(1)(2) | |||||||||||
First Quarter | |||||||||||
(Dollars in millions, unaudited) | 2019 | 2018 | |||||||||
Adjusted EBIT | Adjusted EBIT Margin | Adjusted EBIT | Adjusted EBIT Margin | ||||||||
Additives & Functional Products | $ | 150 | 17.5 | % | $ | 178 | 19.0 | % | |||
Advanced Materials | 102 | 15.5 | % | 138 | 19.9 | % | |||||
Chemical Intermediates | 73 | 11.1 | % | 89 | 12.2 | % | |||||
Fibers | 42 | 19.7 | % | 56 | 22.9 | % | |||||
Total segment EBIT excluding non-core and unusual items | 367 | 15.4 | % | 461 | 17.7 | % | |||||
Other | (15 | ) | (2 | ) | |||||||
Total EBIT excluding non-core and unusual items | $ | 352 | 14.8 | % | $ | 459 | 17.6 | % |
(1) | For identification of excluded non-core and unusual items and reconciliations to GAAP EBIT, see Table 3A. |
(2) | Adjusted EBIT margin is non-GAAP EBIT divided by GAAP sales. See Table 2A for sales. |
Table 4A – Non-GAAP Earnings Before Interest and Taxes, Net Earnings, and Earnings Per Share Reconciliations | |||||||||||||||||||||||
First Quarter 2019 | |||||||||||||||||||||||
Earnings Before Interest and Taxes | Earnings Before Income Taxes | Provision for Income Taxes | Effective Income Tax Rate | Net Earnings Attributable to Eastman | |||||||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | After Tax | Per Diluted Share | |||||||||||||||||||||
As reported (GAAP) | $ | 320 | $ | 264 | $ | 55 | 21 | % | $ | 209 | $ | 1.49 | |||||||||||
Non-Core or Unusual Items: (1) | |||||||||||||||||||||||
Asset impairments and restructuring charges, net | 32 | 32 | 6 | 26 | 0.18 | ||||||||||||||||||
Adjustments from tax law changes and outside-U.S. entity reorganizations | — | — | (10 | ) | 10 | 0.07 | |||||||||||||||||
Interim adjustment to tax provision (2) | — | — | (3 | ) | 3 | 0.03 | |||||||||||||||||
Non-GAAP (Excluding non-core and unusual items and with adjusted provision for income taxes) | $ | 352 | $ | 296 | $ | 48 | 17 | % | $ | 248 | $ | 1.77 |
First Quarter 2018 | |||||||||||||||||||||||
Earnings Before Interest and Taxes | Earnings Before Income Taxes | Provision for Income Taxes | Effective Income Tax Rate | Net Earnings Attributable to Eastman | |||||||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | After Tax | Per Diluted Share | |||||||||||||||||||||
As reported (GAAP) | $ | 409 | $ | 350 | $ | 60 | 17 | % | $ | 290 | $ | 2.00 | |||||||||||
Non-Core or Unusual Items: (1) | |||||||||||||||||||||||
Asset impairments and restructuring charges, net | 2 | 2 | — | 2 | 0.01 | ||||||||||||||||||
Net coal gasification incident costs | 37 | 37 | 8 | 29 | 0.20 | ||||||||||||||||||
Costs resulting from tax law changes and outside-U.S. entity reorganizations | 11 | 11 | 3 | 8 | 0.06 | ||||||||||||||||||
Interim adjustment to tax provision (2) | — | — | 5 | (5 | ) | (0.04 | ) | ||||||||||||||||
Non-GAAP (Excluding non-core and unusual items and with adjusted provision for income taxes) | $ | 459 | $ | 400 | $ | 76 | 19 | % | $ | 324 | $ | 2.23 |
(1) | See Table 3A for description of first quarter 2019 and 2018 non-core and unusual items. Provision for income taxes for non-core and unusual items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible. |
(2) | The adjusted provision for income taxes for first quarter 2019 and 2018 is calculated applying the forecasted full year effective tax rate as shown in Table 4B. |
Table 4A – Non-GAAP Earnings Before Interest and Taxes, Net Earnings, and Earnings Per Share Reconciliations (continued) | |||||||||||||||||||||||
Fourth Quarter 2018 | |||||||||||||||||||||||
Earnings Before Interest and Taxes | Earnings Before Income Taxes | Provision for Income Taxes | Effective Income Tax Rate | Net Earnings Attributable to Eastman | |||||||||||||||||||
(Dollars in millions, except per share amounts, unaudited) | After Tax | Per Diluted Share | |||||||||||||||||||||
As reported (GAAP) | $ | 135 | $ | 71 | $ | 36 | 51 | % | $ | 34 | $ | 0.24 | |||||||||||
Non-Core or Unusual Items: (1) | |||||||||||||||||||||||
Asset impairments and restructuring charges, net | 39 | 39 | — | 39 | 0.28 | ||||||||||||||||||
Mark-to-market pension and other postretirement benefit plans loss, net | 99 | 99 | 24 | 75 | 0.53 | ||||||||||||||||||
Net costs resulting from coal gasification incident | 3 | 3 | 1 | 2 | 0.02 | ||||||||||||||||||
Early debt extinguishment costs | — | 7 | 1 | 6 | 0.04 | ||||||||||||||||||
Adjustment to estimated net tax benefit from tax law changes | — | — | (24 | ) | 24 | 0.17 | |||||||||||||||||
Interim adjustment to tax provision (2) | — | — | (16 | ) | 16 | 0.11 | |||||||||||||||||
Non-GAAP (Excluding non-core and unusual items and with adjusted provision for income taxes) | $ | 276 | $ | 219 | $ | 22 | 11 | % | $ | 196 | $ | 1.39 |
(1) | See "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's 2018 Annual Report on Form 10-K and Tables 3A and 4 of the Company's Current Report on Form 8-K dated and furnished January 31, 2019 for descriptions of fourth quarter 2018 non-core and unusual items. Provision for income taxes for non-core and unusual items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible. |
(2) | Fourth quarter 2018 is a reconciliation of the adjustments made in interim quarters to reflect the previously forecasted 2018 full year effective tax rate. |
Table 4B - Adjusted Effective Tax Rate Calculation | |||||
First Three Months | |||||
2019 | 2018 | ||||
Effective tax rate | 21 | % | 17 | % | |
Discrete tax items (1) | — | % | 1 | % | |
Tax impact of current year non-core and unusual items (2) | (2 | )% | 2 | % | |
Forecasted full year impact of expected tax events | (2 | )% | (1 | )% | |
Forecasted full year effective tax rate | 17 | % | 19 | % |
(1) | "Discrete tax items" are items that are excluded from a company's estimated annual effective tax rate and recognized entirely in the quarter in which the item occurs. First three months 2018 discrete items consist of excess tax benefits related to share-based compensation. |
(2) | Provision for income taxes for non-core and unusual items is calculated using the tax rate for the jurisdiction where the gains are taxable and the expenses are deductible. |
Table 5A – Statements of Cash Flows | |||||||
First Quarter | |||||||
(Dollars in millions, unaudited) | 2019 | 2018 | |||||
Operating activities | |||||||
Net earnings (1) | $ | 209 | $ | 290 | |||
Adjustments to reconcile net earnings to net cash used in operating activities: | |||||||
Depreciation and amortization | 155 | 152 | |||||
Gain from property insurance | — | (50 | ) | ||||
Provision for deferred income taxes | 4 | 11 | |||||
Changes in operating assets and liabilities, net of effect of acquisitions and divestitures: | |||||||
(Increase) decrease in trade receivables | (149 | ) | (223 | ) | |||
(Increase) decrease in inventories | (122 | ) | (80 | ) | |||
Increase (decrease) in trade payables | (42 | ) | 8 | ||||
Pension and other postretirement contributions (in excess of) less than expenses | (36 | ) | (36 | ) | |||
Variable compensation (in excess of) less than expenses | (77 | ) | (77 | ) | |||
Other items, net | 53 | (30 | ) | ||||
Net cash used in operating activities | (5 | ) | (35 | ) | |||
Investing activities | |||||||
Additions to properties and equipment | (106 | ) | (128 | ) | |||
Proceeds from property insurance (2) | — | 50 | |||||
Acquisitions, net of cash acquired | (19 | ) | — | ||||
Net cash used in investing activities | (125 | ) | (78 | ) | |||
Financing activities | |||||||
Net increase (decrease) in commercial paper and other borrowings | 370 | 199 | |||||
Proceeds from borrowings | 125 | 275 | |||||
Repayment of borrowings | (175 | ) | (175 | ) | |||
Dividends paid to stockholders | (87 | ) | (80 | ) | |||
Treasury stock purchases | (125 | ) | (100 | ) | |||
Other items, net | (6 | ) | (3 | ) | |||
Net cash provided by financing activities | 102 | 116 | |||||
Effect of exchange rate changes on cash and cash equivalents | (3 | ) | — | ||||
Net change in cash and cash equivalents | (31 | ) | 3 | ||||
Cash and cash equivalents at beginning of period | 226 | 191 | |||||
Cash and cash equivalents at end of period | $ | 195 | $ | 194 |
(1) | First quarter 2018 includes $29 million costs from the coal gasification incident. |
(2) | Cash proceeds from insurance for coal gasification incident property damage. |
Table 5B – Net Cash Used In Operating Activities to Free Cash Flow Reconciliations | ||||||||
First Quarter | ||||||||
(Dollars in millions, unaudited) | 2019 | 2018 | ||||||
Net cash used in operating activities | $ | (5 | ) | $ | (35 | ) | ||
Capital expenditures | ||||||||
Additions to properties and equipment | (106 | ) | (128 | ) | ||||
Proceeds from property insurance (1) | — | 50 | ||||||
Net capital expenditures | (106 | ) | (78 | ) | ||||
Free cash flow | $ | (111 | ) | $ | (113 | ) |
(1) | Cash proceeds from insurance for coal gasification incident property damage. |
Table 6 – Total Borrowings to Net Debt Reconciliations | ||||||||
March 31, | December 31, | |||||||
(Dollars in millions, unaudited) | 2019 | 2018 | ||||||
Total borrowings | $ | 6,464 | $ | 6,168 | ||||
Less: Cash and cash equivalents | 195 | 226 | ||||||
Net debt | $ | 6,269 | $ | 5,942 |